The Broadbent Blog

Why taxing pollution deserves serious discussion

Prime Minister Stephen Harper and his party have recently attempted to demonize Opposition Leader Tom Mulcair for his alleged advocacy of a “job-killing carbon tax.”

As has been widely noted, Mr. Mulcair and the NDP have, in fact, only called for a cap and trade system based on the broader principle of “polluter pay,” which would require major carbon polluters to purchase emission permits from the government or on a carbon market. This is identical in basic design to Conservative policy during the first Harper government.

Over the top rhetoric about the economic impact of carbon taxes threatens to shut down a needed national discussion over “polluter pay” and the role of prices in creating an environmentally sustainable, efficient and just economy. Such discussions are being promoted by such impeccably mainstream bodies as the Organization for Economic Cooperation and Development (OECD) and the International Monetary Fund (IMF), as well as by the leaders of the world’s largest economies through the G-20.

Last year’s G-20 communiqué from the summit in Los Cabos, Mexico, which was attended by Mr. Harper, reaffirmed a commitment to “rationalize and phase out inefficient fossil fuel subsides that encourage wasteful consumption” and pledged “to promote low-carbon development strategies in order to optimize the potential for green growth and ensure sustainable development.”

The communiqué called for sharing of successful national experiences in fostering investment in clean energy and energy efficiency technologies, and the OECD and the IMF have been asked to undertake research in this area and in the area of environmental taxation.

In a major recent report, “Taxation, Innovation and the Environment,” the OECD argues that environmental charges are needed to counteract a double market failure. Industries will pollute too much if no or too low a price is put on pollution, and the failure of governments to put a price on pollution reduces incentives for companies to invest in innovative products and processes.

The report argues, based on a major international research program, that putting a price on pollution can often achieve environmental goals and promote innovation and greater economic efficiency at a much lower cost than “command and control” regulation or government subsidies.

There are, of course, complex issues to be faced, including the impact of environmental pricing on the competitiveness of firms, employment, and the well-being of lower income households. But these impacts can be addressed by recycling revenues from environmental charges to job-creating clean energy and conservation programs, and to reductions of other taxes.

According to the OECD report, Canada levies environmental charges of just 1.1 per cent of GDP, putting us well behind the average of 2.2 per cent, significantly below the 4 per cent level in some European countries such as Denmark and the Netherlands, and fourth lowest out of 34 OECD members. OECD countries raise revenue from taxes on energy used in transportation, some countries also apply charges to cancer-causing and smog-creating chemicals and waste going to landfill.

The IMF has supported an increased role for environmental charges in reducing government deficits and debt in the wake of the Great Recession. In a 2010 report, “From Stimulus to Consolidation,” they said that “carbon pricing provides a clear opportunity for substantially increasing revenues while enhancing efficiency and sustainable growth.”

Like the OECD, the IMF believes that environmental charges need not have significant negative impacts on growth and employment, and are the lowest cost way to move to a more sustainable economy. Carbon pricing is only part of a larger context that bear scrutiny and discussion.

Governments in Canada are dealing with deficits and debt by cutting spending on social programs and public services and, often, by raising taxes. Meanwhile, experts continue to warn us of the need to take urgent action to deal with global warming and other types of damaging pollution.

Implementing the principle of polluter pay in a careful and intelligent way can promote a needed environmental transition while also promoting innovation, economic efficiency and fairness.

Canadians surely deserve an informed debate rather than overblown political rhetoric.

Andrew Jackson is the Packer Professor of Social Justice at York University and Senior Policy Adviser to the Broadbent Institute.